Aggregate Demand and Supply

The macroeconomic model for Aggregate Demand and Aggregate Supply differs from the microeconomic model in the fact that the AD/AS model represents all goods and not just one single good. It takes into account the price level of all goods as well as the overall aggregate output of the economy.

Aggregate Demand (AD) represents the demand side of the economy. Long-run Aggregate Supply (LAS) represents the most output that an economy can sustain. Short-run Aggregate Supply (SAS) represents the supply of the economy in the short run. These three components can be explained separately and brought together to represent some equilibrium price level and aggregate output.